Private Capital Benchmarks for Investors

In this lesson, we’ll cover how investors use private capital benchmarks and integrate them into their daily workflows. Private capital benchmarks help investors make informed decisions for optimal outcomes and support their analysis across the entire investment lifecycle. 

How do private capital benchmarks support investors?

Asset allocation:

Comprehensive and transparent market benchmarks, indices, and cashflow tools help with identifying attractive sectors and strategies. Benchmarks can also provide investors with geographical performance data to highlight a region’s projected returns against its risk. 

Sourcing:

Fund performance data and cashflow tools help investors source managers aligned to their preferred strategies. Fund performance benchmarks are used to compare funds and fund managers based on their historical track record. 

Deal-level performance data can help an investor source the right fund manager, by being able to uncover value creation per deal carried out by a particular fund manager. 

Due diligence:

Access to fund manager track records, deals data, and team details can streamline initial due diligence by comparing performance to both the market and select peer groups. It’s also possible to dive deeper and verify their capital calling and returning behaviors for additional insights. This is important because investors can be deterred by unexpected capital calls, returns that are delayed, or returns that don’t meet expectations.  

Portfolio analysis:

Investor reporting, portfolio monitoring, benchmarking, risk management, and cashflow forecasting are all key components when analyzing portfolios. A Private Capital Quarterly Index provides reliable data on private market returns, enabling investors to assess portfolio performance in greater depth. Investors also use indices and performance data on returns for their policy benchmark so they can track the total portfolio performance and report back to their board. 

Strategy objectives, managed liquidity, and risk exposures are considered when analyzing how fund managers are performing. 

As the market has evolved, it’s become more common for investors to choose a total portfolio benchmark – known as the ‘portfolio policy benchmark’ – to monitor and report on portfolio performance. The policy benchmark is often an index picked by the investor that’s aligned to the target allocations in their portfolio, and therefore represents a reliable view of the portfolio’s performance relative to similar investments. Investors can also use different indices to track performance on an asset-class level. 

Risk modeling:

The Preqin Private Capital Quarterly Index captures the average return earned by investors in their private capital portfolios based on the actual amount of money invested. 

It provides an accurate view of private market returns across all asset classes and leverages historical performance data to inform investors’ risk modeling.  

In addition to the Private Capital Quarterly Index, investors use risk-return analysis, horizon IRR, public market equivalents, and custom benchmarks to inform their risk models, identify potential risks, and create a plan for how to mitigate those risks should they arise.